Capital is Heterogeneous

10/27/2010 Mises Wire Jeffrey A. Tucker

In the foreground is the Keynesian fiction, in which consumption plus investment (plus government spending) equals output. In the background is the Austrian reality, in which a heterogeneous capital stock responds to changes in the interest rate by shifts in the time structure of production. Intervention in credit markets thus creates distortions that generate the business cycle. See Roger Garrison, Austrian Macroeconomics: A Diagrammatical Exposition (Mises Institute, 2010 forthcoming)

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